What is deferred interest?
“What is Deferred Interest, Anyway?” With the COFI/COSI/CODI/MTA adjustable rate mortgage, CHOOSING THE OPTION OF “MINIMUM PAYMENT” sometimes doesn’t cover all of the Principal and Interest due that month. When that happens, you “defer” the extra Principal and Interest, by adding it to the outstanding balance of your mortgage. Deferred interest may occur if: You have a mortgage with a special “MINIMUM PAYMENT” option. The 7.5% ANNUAL PAYMENT CAP on your mortgage goes into effect. THE INDEX THAT DETERMINES THE INTEREST RATE on your loan goes up. However, the factors that cause deferred interest are also the factors that make a loan affordable: A MINIMUM PAYMENT allows payments to remain low during the critical first five (5) years of home ownership. PAYMENT CAPS limit how much the monthly payment can rise each year. (Payments can also drop when the Index-falls.) “How Will I Ever Pay Off My Loan If Deferred Interest Is Making My Balance Go Up?” Your COFI/COSI/CODI/MTA mortgage is designe
If you have an adjustable rate mortgage you may have experienced what is called deferred interest. This occurs when the payment made is not enough to cover the interest due durring that month. This is also referred to as “Neg Am” or negative amortization. The interest that is not covered by the payment is added to the principal balance of your mortgage When you refinance such a loan all the deferred interest that has been building up is recast as part of the loan creating a potential tax deduction windfall for you. Be sure to consult with your tax specialist partner who can explain these valuable tools to you. Investors often use deferred interest to their advantage. By taking a loan that defers interest it increases the cashflow. This allows you to use the money right now instead of later. Deferred interest can be your best friend if used correctly.
With an options loan you may have payments that may not cover all the interest due that month on your mortgage. When that happens, you defer” the extra interest by adding it to the outstanding balance of your mortgage. Deferred interest may occur if: • You have a mortgage with a special LOW INITIAL INTEREST RATE. • The ANNUAL PAYMENT CAP on your mortgage goes into effect. • The INDEX that determines the interest rate on your loan goes up. However, the factors that cause deferred interest are also the factors that make this loan affordable: • The low start rate allows payments to remain low during the critical first few years of home ownership. • Payment Caps limit how high your interest rate can actually increase each year. Your payments may drop if the interest rate index falls. • Loans tied to the (COFI) Cost of Funds Index have proven to be more economical that fixed-rate mortgages. How will I ever pay off my loan if deferred interest is causing my balance to go up? While there are
